Politicians are generally great at what they do. We know that. It’s a group that self-selects for blowhards and megalomaniacs with a thorough understanding of Zimbabwenomics. And certainly, Massachusetts politicians typify these tendencies. But even by the Mugabian standards of politics, things are getting out of control (in a good way).

[Barney] Frank’s idea is that, for mortgages originated between the start of 2005 and mid-2007, a lender and borrower would be able to agree on a federal refinancing plan. Lenders would have to write down their loan to no more than 85% of the current appraised value of the property – which means the banks will use this opportunity to unload the biggest stinkers in their loan portfolios.

For the borrower, the deal is even sweeter: a low fixed monthly payment and a reduction in the principal to market value. The Federal Housing Administration would then guarantee the loan, up to a total of $300 billion in total Frank Refis. The deal is so sweet that even Mr. Frank is concerned that otherwise reliable borrowers may “purposely default” to be eligible for assistance.

Just to be clear, what Mr. Frank is proposing is to bail out anyone who took risk on a house they couldn’t afford. Many of these people will have, smartly, put little to no money down to take that risk and benefit from the potential upside were the house to appreciate. How is he planning to finance this proposal? Taxes, of course. So those who dumbly did not take risks with large potential upside will now pay those who did. This is an extremely Mugabe efficient proposal and will be a resounding success with no downside.

Recommendation: Long excessive risk-taking, just make sure to do it in a group large enough to form a voting bloc. Also, I have found that Zimbabwenomics is much funnier when it is not happening in my country.

I actually had the exact same reaction when I saw that article last Thursday. I’m torn between trying to make a joke out of it, or going on a tirade at how incredibly ignorant it would of our government to overtly backstop an individual’s credit risk (in addition to backstopping liquidity risk, which they’ve already done). Complete Zimbabwenomics. I’m sure the law of unintended consequences will never rear its head anywhere near this debacle.

Oh and you have to imagine that two of our Presidential candidates are just salivating at Chavez’s most recent proposal (no, not Chavez Standard Time), but his windfall profits tax of 50% over $70/barrel and 60% over $100. Apparently some members of this country want to make it illegal to make too much money (just ask Visa and MA who are already facing potential legislation as their business model is too profitable – then again, if they never went public it wouldn’t have happened, so hard to feel too bad for them). I have a little Econ 101 lesson for Congress: you can control supply or price, but not both (just look at the price of rice as every nation in Asia puts in export limits – I’ll give you a hint, it’s not going down). Guess what folks, inflation is here to stay until our government decides to stop perpetuating policies that reinforce it.

Calling the government ignorant is equivalent to just pointing out that it’s the government. Ignorance – especially ignorance of basic economics – is a pre-requisite for entry into government. After all, if people in government weren’t incompetent, ignorant and power hungry, they would be out doing something productive.

Barney Frank’s plan is not as crazy or terrible as you make it out to be because (a) it’s only open to houses that is the homeowner’s primary residence, (b) the government retains an option on the upside if the house later appreciates in value (this declines over time), and (c) it provides liquidity to an otherwise illiquid market while keeping people who would legitimately have to find a new place to stay in their homes.

I understand all of the talk about moral hazard and rewarding people who took risks. However, in the realm of “realistic ideas that might actually help relieve the current problem”, this one’s not that bad.

Oh, and I’m not some crazy left-wing liberal. I work at a (not blown-up) hedge-fund (in a non-back-office role)…

So, Rates Guy, in your expert opinion, when does it become “OK” to start branding your own terminology? Please, enlighten me, as I was previously unaware that there was some sort of waiting period involved.

Forgot to add that in case you (or anyone else) were wondering, the goal is NOT to be LoSC. Juggles, Debacle and crew are solid at what they do, we’re not trying by any means to copy them, although they have obviously been an inspiration.

I know i am way late to the game here, but I have to post something about that Tim guy. I mean there is so much theoretical humor that could be derived from that last string of comments that it is really hard to start, but here goes:
1) If he has enough time to post that many blog comments, he is either: bi-polar, unemployed, a total douche, or some combo of the three. This is self evident.
2) This point, which is more subtle, has obviously been lost on Tim: the whole reason finance is so awesome is that the common man can’t understand it. That’s why we make so much more money than them and get sweet stuff like Gucci loafers, yachts, and houses in the Hamptons. Once some finance guys caught on to this phenomenon, they basically just created a whole new language that normal dumb people who didn’t go to good colleges and aren’t from greenwich can’t understand. This is the only barrier to entry in finance, because if you thinnk about how easy our jobs actually are, you really only need to be able to do simple math, have a working mouth, and know how to use a qwerty keyboard. So Tim, what’s the incentive for us to explain finance to dumb people? Then who would be left to fire at the companies I LBO and reap massive profits from? Who would walk around my office asking to shine my shoes? If they were all shorting penny stocks, the answer is nobody. And by the way, shorting penny stocks? really? are you f-ing serious? they are f-ing penny stocks! they are pretty darn close to zero, Tim. So your possible gain is kinda limited there, whereass if any of them actually do pop, you are totally f-ed. I would rather turn my wads of money into a bludgeoning device and beat myself to death with it than short a basket of penny stocks. Get a job, please. at a company with strong cashflows that is non-cyclical and has a weak management team and where you are not in a union and where you are overpaid, if possible. please.

excuse me i was not aware of your ubiquitous popularity, i mistakenly assumed your new blog has a small readership and you were just being arrogant and presumtuous in trusting anyone else would know what you have dubbed Barneynomics

Re: rates guy and Anal_yst. We think 1-2 Knockout is very good (so far) and bickering very boring. Very very little is worth bickering about over the internet, especially in a non-funny way; science has proven that the only two things worth it are the legalization of prostituion and the Large Hadron Collider’s likelihood of ending existence. Consider this.

agreed, that might be one of the finest comments of the year, anywhere, maybe even ever.

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